The Fourfold Pattern of Risk Attitudes in Choice and Pricing Tasks
William Harbaugh, Kate Krause and Lise Vesterlund examine whether the fourfold pattern of risk attitudes survives a change in how preferences are measured. When participants set prices for gambles, they were on average risk seeking over low-probability gains and high-probability losses and risk averse over high-probability gains and low-probability losses. When participants instead chose between a gamble and its expected value, their individual decisions were indistinguishable from random choice. The sensitivity to method held between and within participants and remained when they could review and change their decisions. The authors note that pricing is the more complex procedure and suggest that more cognitive load may exacerbate behavioural anomalies.
William Harbaugh, Kate Krause and Lise Vesterlund examine whether the fourfold pattern of risk attitudes survives a change in how preferences are measured. When participants set prices for gambles, they were on average risk seeking over low-probability gains and high-probability losses and risk averse over high-probability gains and low-probability losses. When participants instead chose between a gamble and its expected value, their individual decisions were indistinguishable from random choice. The sensitivity to method held between and within participants and remained when they could review and change their decisions. The authors note that pricing is the more complex procedure and suggest that more cognitive load may exacerbate behavioural anomalies.
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Harbaugh, W. T., Krause, K., & Vesterlund, L. (2010). The Fourfold Pattern of Risk Attitudes in Choice and Pricing Tasks. The Economic Journal, 120(545), 595-611. doi:10.1111/j.1468-0297.2009.02312.x https://doi.org/10.1111/j.1468-0297.2009.02312.x